Congratulations, You've Lost! How Slot Machines Disguise Losses as Wins

Photo: firepile

Casinos are designed for a single purpose: to separate you from your money. And they’re good at it. Commercial casinos in the U.S.  made nearly $35 billion in revenue last year, up a percent from 2009.

While they represent just a fraction of that revenue, slot machines are the casino gateway drug for the least savvy gamblers. It’s why they’re by the door. More than any other casino game, slots condition people to keep playing through positive reinforcement (bells and whistles). And the odds have gotten worse as technology has improved.

Though today’s sophisticated multi-line machines have a higher “win-rate,” the amount won is negligible, and often less than what was originally gambled. A recent study by researchers at the University of Waterloo in Ontario, finds that these multi-line machines are more effective than their single-line predecessors at taking money from the gambler by disguising losses as wins.

Casino slots today are dominated by multi-line machines, which allow you to bet on a multitude of combinations: up, down, diagonal, rather than just hoping for the three 7’s to line up across the middle on an old-school single-line machine. While that may seem like an advantage, it’s harder for the average person to accurately calculate the odds of multi-line machines.

The table below shows how losses are disguised as wins based on the number of lines the user has bet on:

Though you may win more, the pay out is often lower than what you’ve already put into the machine to begin with. So you get the bells and whistles, but it’s really just a fancy loss.


Caleb b

One othe point: casinos cannibalize other businesses, so those new casino jobs are, in some cases, entirely offset by lost jobs in surrounding businesses.

I don't live in, but know a lot about, Dodge City, KS. They added a casino last year and restaurants, the bowling alley, the movies, are all far less busy than before the casino. The money that used to stay in Dodge now goes to the state and private owners who live out of state. It can't be a net win for the city economically. And the stories of farmers losing it all due to addiction keep piling up.

Steve (UK)

I LOVE Freakonomics. 
I like reading articles void of subjective opinion and ethical (mis)judgments. 
I don't like hating on free material published by a brand I so admire

But...

Sadly the observational articles that I've read recently just don't compare to the studies in the books. 

For example, compare and contrast the article above to Levitt's sumo wrestling analysis and the significance of the conclusion drawn, most remarkably in spite of the phrase:  'I have never watched a sumo wrestling match but...' 

No-where in that table's small print above, is a mention of EV, ROI, or average $ return. 

I appreciate the fact there's time constraints with these articles but authors please check the comments and:
- raise the academic bar on the level of analysis 
- draw more meaningful conclusions. Some of those drawn amongst the comments utilise just the data in the article yet present more succinct conclusions which better address the title of the article. 

Read more...

Graham

The worst part is that it's a shallow analysis (fine, it's a blog) that links to a gated article. When research is gated like this, I assume the authors are hiding something. Simple economic reasoning would say that research isn't free. However, I know that if I made a breakthrough, I'd want the world to know about it, as I'd gladly trade a small amount of short-term income for fame and future income.

So I, as a lay person, conclude that the research is shoddy and reflects poorly on the authors, as they're not shouting their result from the rooftops (or posting on arXiv.org, which admittedly has a narrower focus now than it used to). The only way to refute my argument is to release the article.

Former Academic

Academicians generally try to publish in the most prestigious journal appropriate to the research that they are reporting. There are no payments to the authors for publishing in academic journals. Indeed, most journals require authors to pay for page charges for the privilege of publishing an article. Publishing an article that has undergone review (typically double-blind) in a well-respected journal is "shouting their result from the rooftops" from a researcher's perspective. Although many academic journals have made their articles available to anyone, Wiley evidently maintains a subscription requirement. However, many public libraries have subscriptions to these journals, thus enabling patrons to access them at no additional cost.

Steve Rosen

Last week, I sat through a presentation by the GM of Cleveland's soon-to-open Horshoe Casino. He explained the average bet on a "penny" slot is actually seventy cents and that the "pull" rate is almost seven times a minute. Do the math, they have a great gig.

Malcolm

I'm just now reading Freakonomics, and enjoying it. At last an economist who thinks differently. If you have time, I have a question - and btw, if it were up to me, there would be no Nobel Prize for economics, until - :
Why do ALL economic plans depend on growth? Telling us: Ageing populations are bad. Shrinking markets are bad. People spending less is bad. Less credit is bad. Etc., etc.
The hunger for growth got us into the mess we are in today. When will an economist come up with a sustainable plan based on enough? (After all, you suggested that economists modify human behavior)
My say = there is only one problem. Too many people.

RogerP

First, I stopped gambling the day I played 40 games in a row on a slot machine without a single win. That was a 0% payout and I haven't played since (more than 25 years).

My wife still plays, but she cherry picks machines. The odds given above must be for playing an infinite number of games on a single game. She has an intuitive feel for machines that are paying out for a limited period of time and stops playing when they stop paying.

I have no idea how effective her system is but, judging from the number of points she acquires (that can be redeemed for free accommodation), she turns over an amount that is far more than her monthly salary in a weekend. Whether she finishes up or down, I've never known her to lose her entire stake; she stops playing well before that happens

Lassie

I've been to the casino, put $40 on my card, and went to town on the machines. Twenty minutes later, I lost every penny. I might as well have just thrown my money out the window on the ride in, turned around in the parking lot, and gone back home. I don't get it. I really don't get it.

divelly

I bumped into an old friend I hadn't seen in a few years at the local casino.
I said ,"How's it going?"
He said,"Not so good.I lost my job and they repossesed my car so it's hard to look for one.
And my poor old mother can't keep up wiyh her house paymewnts since dad died and the bank might foreclose.
And my wife needs an operation and we don't have insurance and can't afford it.
Do you suppose you could lend me a few dollars?"
"We're in a casino.How do I know you won't go gamble it away?"I said
He said,"Oh!I got my gambling money!"

Joe Allen

What about 'Near Misses'.
In Nevada (at least) slots can weight the stops just before and after a jackpot 5x more heavily than if each were equally likely. This means you will infer from the close calls that you were much more likely to win than you really are.

The Wizard of Odds is a great resource on slot machine statistics and methods:
http://wizardofodds.com/askthewizard/slots2.html